Excess Profits Tax


DEFINITION of 'Excess Profits Tax'

A special tax that is assessed upon income beyond a specified amount, usually in excess of a deemed "normal" income. Excess profit taxes are primarily imposed on some businesses during a time of war or other emergency, or beyond a certain amount of return on invested capital. Excess profits taxes are designed to generate emergency revenue for the government in time of crisis. The tax itself is imposed on the difference between the amount of profit that a company generally earns during peacetime and the profits earned during times of war.

BREAKING DOWN 'Excess Profits Tax'

These taxes are also intended to prevent astute businessmen from reaping inordinate profits from increased wartime governmental and consumer spending. Excess profits taxes were levied during both world wars, as well as the Korean War. This tax is not popular with free-enterprise thinkers, who feel that it discourages necessary wartime productivity with its removal of the profit motive.

  1. Taxes

    An involuntary fee levied on corporations or individuals that ...
  2. Business Logic

    Custom rules or algorithms that handle the exchange of information ...
  3. Profit

    A financial benefit that is realized when the amount of revenue ...
  4. Federal Income Tax

    A tax levied by the United States Internal Revenue Service (IRS) ...
  5. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  6. Federal Tax Brackets

    Income tax groupings specified by the Internal Revenue Service ...
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